The current state of commercial real estate capital markets can be described as volatile and uncertain. Recent reports from CBRE and Newmark show little change in fluctuations during the second quarter, but there are signs of stabilization.
Transaction volume has continued to decline, according to both CBRE’s Capital Markets & Lending report and Newmark’s State of the U.S. Capital Markets report. However, there were some positive developments in certain asset types such as multifamily which saw a 1% decrease year-over-year (YoY) according to Newmark, while hospitality experienced a significant decline of 35% YoY.
Multifamily was the leading sector for investment volume in Q2 with $38 billion (according to CBRE), while industrial investment fell by approximately 18%. Interestingly enough, office transactions increased by 4%, although CBRE reported a YoY decline of 21.3%.
In terms of debt markets, both reports noted that banks have been hesitant to lend during this period and alternative lenders have stepped up instead. According to Newmark’s analysis, overall debt origination activity was constrained during the first half of 2024 but may be showing signs for improvement going forward due regional banks facing deleveraging challenges from CRE loans maturing between now until at least through mid-2206.
Alternative lenders accounted for a significant portion (33%)of non-agency loans closed in Q2 according to CBRE analysts who also added that within this group specifically; debt funds saw an increase origination volume by over two-thirds compared with last year’s levels alone!
Securitized markets are also playing an important role currently with CMBS issuances on rise again after declining earlier part or most recent recessionary period(s). Life Companies too seem more active than ever before having accounted for nearly one-third all non-agency loan closings so far thus far into calendar year-to-date basis per latest data available today. CBRE analysts also noted that LifeCos increased their issuances by 10% during the first half of 2024.
The bond market has seen some positive developments as well, with lower corporate bond yields leading to improved mortgage bond spreads according to Newmark’s analysis. However, both private and public markets are showing unattractive cap rates compared to the cost of debt capital, except for office REITs which may be an exception.
Meanwhile, benchmark Treasury yields have continued to decline due in part because of a cooling U.S. economy and labor market according CBRE experts who added that they anticipate long-term Treasury yields will likely remain at mid-3% range even after Federal Reserve normalizes its policy stance assuming equilibrium federal funds rate remains above or near current levels (i.e., around 3%).
